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TUESDAY, JULY 1, 2014
VOLUME 251—NO. 125
Expert Analysis
WHITE-COLLAR CRIME
False Statement Prosecutions:
Major Change at Justice Department?
U
nder Section 1001 of Title 18, it is
a crime knowingly and willfully to
make a “materially false, fictitious,
or fraudulent statement” in a matter within the “jurisdiction” of the
federal government. The scope of conduct
subject to criminal prosecution has expanded
over time. The law applies to a vast array of
activity, ranging from statements made in the
ordinary course of business—if the business
receives federal funds or otherwise is subjected to federal oversight—to statements made
during an interview by government agents.
While the law has been criticized for its
breadth, and for the power it gives prosecutors to single out particular false statements
to charge,1 courts have interpreted the law
expansively. The Supreme Court has held
that the law applies to statements made
in response to questioning by federal law
enforcement officials; a defendant need not
know that a matter is within federal jurisdiction to be criminally liable; and the law is not
subject to an “exculpatory no” defense, which
would place outside the law’s reach simple
denials of guilt.2
The Department of Justice has recently taken a position on one element of a Section 1001
charge—the “willfulness” requirement—which
has drawn renewed attention to the broad reach
of the law. Only this time, rather than signaling
a more expansive approach, the Justice Department has surprised observers by announcing a
position that, at first blush, makes it tougher for
the government to prosecute violations of the
false statements law.
In this article, we consider the position taken
by the Justice Department and its practical
implications. While the government’s stance
is important and noteworthy, we conclude that
it may have limited practical implications for
white-collar criminal practice.
ELKAN ABRAMOWITZ and JONATHAN SACK are members of Morvillo Abramowitz Grand Iason & Anello.
GRETCHAN R. OHLIG, an attorney, assisted in the preparation of this article.
By
Elkan
Abramowitz
And
Jonathan
Sack
‘Natale v. United States’
John Natale, a surgeon, was convicted of
violating Section 1035 of Title 18, a provision
analogous to Section 1001, which criminalizes
false statements made willfully in connection
with health care benefit programs. At trial, the
district court instructed the jury that an act is
done willfully if done “voluntarily and intentionally and with intent to do something the law forbids.” On appeal, Natale argued that the district
court erred by failing to instruct the jury that
the willfulness element of Section 1035 requires
proof of a “specific intent to deceive.”3 The U.S.
Court of Appeals for the Seventh Circuit affirmed
the conviction, and the defendant sought review
by the Supreme Court.
Opposing Natale’s certiorari petition, the
government argued that the plain language of
Section 1035, like Section 1001, does not require
a defendant to have specific intent to deceive,
and that the defendant had waived his right
to challenge the instruction because counsel
at trial affirmatively accepted the instruction
at issue. In its discussion, the government
addressed the related but distinct question
of whether the willfulness element of Sections
1035—and 1001—requires proof that the defendant acted with knowledge that his conduct
was unlawful. Interestingly, the government
went out of its way to address this issue, as
it expressly noted that this aspect of willfulness was “not implicated” in Natale because
the court’s instructions had required the jury
to find that Natale acted “with intent to do
something the law forbids.”
On this willfulness issue, the government
cited a disagreement among the circuits. 4 In
the government’s view, a majority of circuit
courts require proof only that the defendant
acted deliberately and with knowledge that the
statement was false,5 whereas in the U.S. Court
of Appeals for the Third Circuit the willfulness
element requires an additional showing that
the defendant had “knowledge of the general
unlawfulness of the conduct at issue.”6 Referring to two other briefs recently filed by the
government on petitions for certiorari, the
government stated its resolution of the issue
as follows: “it is now the position of the United
States that the ‘willfully’ element of Sections
1001 and 1035 requires proof that the defendant
made a false statement with knowledge that
his conduct was unlawful.”7
The Justice Department has surprised observers by announcing a
position that, at first blush, makes
it tougher for the government to
prosecute violations of the false
statements law.
While Natale’s petition for certiorari was
denied by the Supreme Court,8 the government’s
admission of error as to willfulness in two other
Section 1035 prosecutions, that is, its acknowledgement that willfulness requires knowledge
of the unlawful nature of conduct, resulted in
the court vacating the judgments in those cases
and remanding them for further consideration.9
Limited Impact
Though one observer has termed this a
“defendant-friendly makeover,”10 the immediate
question for white-collar practitioners is how
this interpretation of the “willfulness” element
affects our advice to clients, and how we and
our clients engage with the government. In
our view, the impact will be modest, chiefly
for two reasons.
TUESDAY, JULY 1, 2014
First, one of the most common situations giving rise to concern over Section 1001 liability
is the interview of a client by a prosecutor and
agents in the prosecutor’s office. The nature of
such interviews varies widely and ranges from
fact-gathering exercises with witnesses and subjects to more strained and challenging innocence
or cooperation-related proffers.
Regardless of the precise circumstances,
a client has typically been advised by his or
her own counsel of the implications of giving
false information to government officials. And
commonly, a prosecutor, before the interview
begins, informs the person being interviewed of
the importance of telling the truth and potential
consequences of not doing so. The phrasing
and level of detail of such prosecutorial warnings vary a good deal, depending sometimes on
the nature of the interview, but commonly the
prosecutor or agent makes clear the serious
consequences of not telling the truth. A logical
effect of the Justice Department’s position in
Natale is for prosecutors to make the implications of false statements especially clear, and
prosecutorial warnings should ordinarily be
sufficient to prove willfulness in a case premised on false statements made in a government interview of a represented client.
Second, independently of the willfulness
requirement now accepted by the Justice
Department, prosecutors always had to prove
that a defendant knowingly made a “materially
false, fictitious, or fraudulent statement.” Guilt
under Section 1001 requires a showing that the
defendant lied about something that was material to the matter at hand, such as a report filed
with the government or a statement made to
an investigator, and made that statement knowingly, not by accident.
To mount a willfulness defense, counsel would
have to argue to a prosecutor or, later, to a jury
that a client did not know it was unlawful to make
a knowing false statement on a subject that was
relevant to a government function. While such
circumstances no doubt exist, a fact-finder might
find it hard to accept that a white-collar defendant
thought it was lawful to lie to the government.
Where Defense Is Viable
At the same time, we see at least two circumstances in which a robust willfulness requirement
could be favorable to defendants facing Section
1001 charges.
The first situation is suggested by the
uncounseled interview underlying United
States v. Brogan, the Supreme Court decision
that rejected the “exculpatory no” doctrine. In
that case, federal agents went to the home of
the defendant, a union official, to question him
at night about illegal activities. James Brogan
denied receiving any cash or gifts while he was
a union officer, though agents knew from records
obtained before the interview that, in fact, he
had accepted illegal payments.11
In a concurring opinion, Justice Ruth Bader
Ginsburg expressed deep reservations about
the “extraordinary authority” the law gave
to prosecutors to “manufacture crimes.” 12
Making an observation directly relevant to
the willfulness issue, Ginsburg noted that the
law applied to “encounters between agents
and their targets ‘under extremely informal
circumstances which do not sufficiently alert
the person interviewed to the danger that false
statements may lead to a felony conviction.’”13
A logical effect of the Justice Department’s position in ‘Natale’ is for prosecutors to make the implications
of false statements especially clear,
and prosecutorial warnings should
ordinarily be sufficient to prove willfulness in a case premised on false
statements made in a government
interview of a represented client.
Consistent with this observation, a willfulness defense may be viable when lawyers are
not involved and agents choose to confront
witnesses in their home or at work in order to
elicit unguarded statements. Under these circumstances, counsel may more effectively be
able to argue that a defendant became flustered
and nervous, and that the defendant did not
remember the facts clearly or fully appreciate
the consequences of making the statements
at issue. While such uncounseled interviews
are not as common in white-collar as in other
criminal investigations, they certainly occur,
and the government often seeks to conduct
surprise interviews of company employees
even when company counsel do their utmost
to cooperate and foreclose direct agent contact
with employees.
The second situation in which a willfulness
defense may be persuasive arises when false
statements are made downstream from the government activity, such as when a private subcontractor makes a false statement to another
private contractor on a federally funded project.14
Though the subcontractor sometimes has no
direct contact with a government agency, if the
statement is material to the public funding, such
as a statement relating to completion of work or
compliance with regulations, it falls within the
wide scope of Section 1001 (and within Section
1035 in the health care field).
In these situations, though lack of knowledge
of a federal government role is not a defense, a
defendant might still be able to argue that he or
she did not appreciate the unlawful nature of a
false statement. Countering this defense, the gov-
ernment can often point to the wording of forms
and certifications required by the government
which expressly state that false statements are
crimes punishable by imprisonment.15 Nonetheless, while still very challenging, a willfulness argument might resonate with jurors concerned about
the breadth of a law that imposes criminal liability
on individuals who have no involvement with,
or appreciation of, a federal government role.
Conclusion Concern over the scope of Section 1001 and
analogous provisions will no doubt continue,
as suggested by the powerful concurring opinion of Justice Ginsburg in Brogan. The position
on “willfulness” recently taken by the Justice
Department, though not a radical step, may
mitigate that concern to some degree, at least
in the sort of intimidating law enforcement
encounters discussed in that case. What will
be most interesting is to see whether the Department of Justice’s new legal position translates
into a different approach toward Section 1001
charging decisions.
•••••••••••••
••••••••••••••••
1. John R. Emshwiller and Gary Fields, “For Feds, ‘Lying’
Is a Handy Charge,” The Wall Street Journal (April 9, 2012);
Harvey Silverglate, “What the Wall Street Journal Missed
About False Statements Made to the FBI,” Forbes.com (April
18, 2012).
2. United States v. Rodgers, 466 U.S. 475 (1984); United States v.
Yermian, 468 U.S. 63 (1984); United States v. Brogan, 522 U.S. 398
(1998).
3. Natale v. United States, 719 F.3d 719 (7th Cir. 2013).
4. See Brief for the United States in Opposition, Natale v.
United States, No. 13-744 at p. 11 n.3 (March 2014).
5. See, e.g., United States v. Gonsalves, 435 F.3d 64 (1st Cir.
2006); United States v. Hopkins, 916 F.2d 207 (5th Cir. 1990).
6. United States v. Starnes, 583 F.3d 196 (3d Cir. 2009). The
government also cited two Second Circuit decisions to suggest that the Second Circuit has adopted the same view as the
Third Circuit. Neither decision reached the issue directly, stating in dicta that the willfulness element under Section 1001 required that an act be done knowingly, intentionally, and with a
“bad purpose,” United States v. Bakhtiari, 913 F.2d 1053, 1059
n.1 (2d Cir. 1990), or with a “purpose to do something the law
forbids” United States v. Whab, 355 F.3d 155, 160 (2d Cir. 2004).
7. Brief for the United States at p. 12.
8. 134 S.Ct. 1875 (2014).
9. Ajoku v. United States, 134 S.Ct. 1872 (2014); Russell v. United
States, 134 S.Ct. 1872 (2014).
10. Tony Mauro, “DOJ’s Quiet Concession,” National Law
Journal (May 12, 2014).
11. Brogan, 118 S.Ct. at 807-808.
12. Id. at 812.
13. Id. at 813.
14. See, e.g., United States v. Jackson, 608 F.3d 193 (4th Cir.
2010), cert. denied, 131 S.Ct. 999 (2011) (defendant’s falsified
timesheets submitted to his employer, a subcontractor for a
prime contractor under a contract with a National Security
Agency, subjected defendant to prosecution under Section
1001).
15. See United States v. May, 1999 WL 1253078 (6th Cir. Dec.
17, 1999), cert. denied, 121 S.Ct. 79 (2000) (affirming Section 1001
conviction where jury could reasonably infer willfulness and
intent from statement above signature line on form that false
statements are punishable as crimes under federal or state law).
Reprinted with permission from the July 1, 2014 edition of the NEW YORK LAW
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